Al Qaeda Organization of Holy War in Iraq said Tokyo had offered a ransom of "millions of dollars" for 24-year-old Koda. It warned Japan to withdraw its forces from Iraq or "drown in the hell of the mujahideen" along with "crusader forces."

Japanese Foreign Ministry spokesman Hatsuhisa Takashima denied the ransom claim. "It's just groundless. We have not done that," he said, denouncing the video posting as "disgusting." ...

The video showed the hostage, who was wearing a white T-shirt, kneeling with a U.S. flag laid out behind him. Koda's hands were tied behind his back and three masked men dressed all in black stood beneath the group's banner.

After reading a statement, the men grabbed Koda and put him on the flag before sawing off his head with a large knife and holding it aloft and placing it on top of the corpse.

"We had given the Japanese government 48 hours to save its citizen and meet our demands ... and after the deadline passed we cut off the head of this infidel," one of the militants said.

"Let the whole world know that Al Qaeda Organization of Holy War is firm in its jihad (holy war) despite the Japanese government's offer of a ransom of millions of dollars to release their parasite son," said a separate statement from the group dated Nov. 2 and posted on a Web site often used by Islamists.

Japanese Prime Minister Junichiro Koizumi, a close ally of President Bush, has condemned the killing and vowed to keep Japan's troops in Iraq.